Switzerland begins Panama Papers probe

08/04/2016

Mossack Fonseca's headquarters in Hong Kong (Reuters)

Swiss banks must clamp down on money laundering, the country's financial watchdog says as the Geneva prosecutor opened a criminal probe after a massive document leak showed how offshore companies are used to stash clients' wealth.

Four decades of documents from Panamanian law firm Mossack Fonseca, which specialises in setting up offshore companies and has offices in Zurich and Geneva, showed widespread use of those instruments by global banks and triggered investigations across the world.

"The risk posed by money laundering is on the increase in Switzerland and banks need to do more to combat it," FINMA chief executive Mark Branson told the watchdog's annual news conference in the capital Bern on Thursday.

Switzerland is the world's biggest wealth management centre.

The "Panama Papers", revealed through an investigation by the International Consortium of Investigative Journalists, exposed financial arrangements of politicians and public figures including friends of Russian President Vladimir Putin, relatives of the prime ministers of Britain, Iceland and Pakistan, and the president of Ukraine.

Branches of Swiss lenders including UBS and Credit Suisse were mentioned in the leaked documents as being among the main banks that requested the most offshore companies for clients.

Both banks have denied wrongdoing in connection with the practice.

Swiss financial institutions -- a focal point of ongoing efforts by European governments to crack down on tax avoidance -- trailed only Hong Kong in having used Mossack Fonseca, the reports have said.

Branson said FINMA would first check whether there were indications of illegal activity before deciding whether to launch an investigation in connection with the Panama Papers.

Geneva's prosecutor said on Thursday he had launched a criminal inquiry in connection with leaks that revealed many offshore companies set up by lawyers and institutions in the Swiss lakeside city and financial centre.

"The public prosecutor's office is very attentive to these revelations," chief prosecutor Olivier Jornot was quoted by the daily Tribune de Geneve as telling reporters. He declined to give details.

One prominent Geneva lawyer helped set up 136 Panama offshore companies, Swiss television has reported.

Another Geneva lawyer, Francois Canonica, said on Swiss television on Wednesday night, "Yes, it is an industry with a legal dimension. I have been in this business for 30 years and this activity was sought after by foreign nationals. There is nothing illegal, illicit or perception of criminality to it."

"There was no bad odour at the time, Swiss banks and their secrecy were an engine of the Swiss economy in the same vein as chocolates and watchmaking," said Canonica, a former head of the Geneva bar association.

He referred to a period after the 1981 election of French President Francois Mitterrand, which he said drove French fearful of nationalisation to place their money in offshore Swiss accounts.

Credit Suisse CEO Tidjane Thiam said on Tuesday his bank was after only lawful assets.

UBS said on Monday it conducted its business in full compliance with applicable law and regulations and that it had no interest in funds that were not taxed or derived from unlawful activities.

Branson said several Swiss banks were implicated in a corruption scandal surrounding Brazil's Petrobras and suspicious cash flows linked to the Malaysian sovereign fund 1MDB.

FINMA has launched four enforcement proceedings against institutions in the 1MDB case and three over Petrobras.

"There are concrete indications that the measures those banks had in place to combat money laundering were inadequate," Branson said.